Hard money lenders are private individuals or private groups that offer loans (loan secured by hard assets, such as real estate) to you, the business owner or investor. State and federal regulatory agencies restrict the lending practices of commercial banks. Hard money lenders are not bound by these same regulatory restrictions. Therefore, these private lenders are able to work with situations that public lenders are precluded from.
Short answer: You may not! It will depend on what type of business you are in and the status of your current financial situation. If you are a commercial real estate investor or developer, the chances are pretty high that you will use hard money and bridge loans for short-term financing of some projects. Many more business people and commercial real estate investors will probably need and use hard money loans during this time of tight money markets.
Each hard money lender has the freedom to set their own criteria and choose what kinds of projects that are interested in funding. Business Money Source offers many types of commercial loans, including hard money through our funding sources. Apply here for a hard money loan.
Two characteristics that distinguish these loans from conventional loans are: cost and time.
The cost of these kinds of loans will be substantially higher in terms of interest rates and fees, than a conventional loan. There will probably also be a pre-payment penalty attached, if you pay off the loan before end of the term. This is due to the increase risk to the lender. One would not pay more interest for a loan if he could get the business money elsewhere.
The other characteristic is time. These loans are often referred to as quick loans because of the reduced turnaround time from the application to the closing of the loan. Traditional commercial loans are notorious for taking anywhere from 4 weeks to 4 months or longer, to close. This time is due to the amount of “red tape” required to close a complicated commercial real estate loan.
Hard money can often be obtained much quicker, sometimes within several days but usually within a week or two. The ability to act quickly is often paramount in real estate or development projects, either because of competition from other investors or because of some legal restrictions. In this kind of situation, you may have to obtain a hard money loan to close the deal. You can then refinance for better terms later and pay off the hard money.
You should, as with all transactions, only use this kind of financing after performing all due diligence and with the counsel of financial and legal professions. This is especially true with hard money loans due to the high cost associated with these loans.
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